Mango sustainability in SA airline arena

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SAA II Date:02-11-2008Producer: Esté de KlerkPresenter:Derek WattsGenre: Business and FinancialOver the past decade losing billions has become a trend for South Africa's national carrier, SAA.

In June this year, as a worldwide oil shortage precipitated a drop in the markets, SAA hedged to try to prevent a financial disaster. But this only made matters worse.

In August, when Carte Blanche exposed gross financial mismanagement at SAA, CEO Khaya Ngqula denied it.

[Carte Blanche August 2008] Khaya Ncqula (SAA - CEO): "I would say that is fiction, there's a lot of fiction and fantasy from people."

Bongani Bingwa (Carte Blanche presenter): "In the past two years government has handed over R2.8-billion to SAA. In July this year the begging bowl was out again - this time, for an additional R2.9-billion. The grand total - R5.7-billion."

[Carte Blanche August 2008] Khaya: "This figure of R5.7-billion, I don't know where people get it from."

[Carte Blanche August 2008] Gidon Novick (CEO - Kulula): "Over the last five years we saw R15-billion going into those airlines, and we're talking now about, on the table, R5.7-billion that has been requested to subsidise and support SAA, SA Express and Mango."

Bongani: "As SAA's major shareholder, government has a vested interest in keeping the airline afloat. Call it loans, capital investments or bail-outs, no matter how badly it performs, our national carrier is guaranteed money that ultimately comes from the taxpayers' pocket."

[Carte Blanche August 2008] Khaya: "And that's the fact of the matter, the airline is owned by the government, the government is a shareholder, whether it is the taxpayer or the government is up to you."

SAA has cut about 2 000 jobs since last year. This after consultants Seabury told them to cut staff from 11 000 to 7 000. But selected staff are being paid top salaries and are getting so-called "retention bonuses".

[Carte Blanche August 2008] Khaya: "It's rubbish."

[Carte Blanche August 2008] Bongani: "That's absolutely not true?"

[Carte Blanche August 2008] Khaya: "Bull****... rubbish."

Many believe it's time to sell

[Carte Blanche August 2008] Glen Orsmond (CEO - 1Time): "I've heard it being called a strategic asset, I think in this case it's more a strategic liability."

[Carte Blanche August 2008] Khaya: "This airline is in great shape, it's doing well."

But former employees and insiders confirm that it's definitely not in great shape and say that abuse of power, victimisation and intimidation at SAA have become untenable. After our last programme, six employees were suspended for leaking information and speaking to Carte Blanche. In fact, none of them had spoken to us.




Now, three independent sources have confirmed to us that once again, taxpayers are coughing up millions. By the end of October, SAA had lost more than R400-million because they hedged at the highest crude oil price the world has ever seen - 140 US dollars a barrel.

Our sources told us that SAA took a decision to hedge at this price from July until the end of December. So for six months, they're paying $140 a barrel, while the price of crude oil is currently between $60 and $70 barrel.

Gidon: "You and I once again are going to be called upon to cough in like we have been in the past. Like we have been over the rand-hedge going back years again - which cost us R6-billion or R7-billion - we coughed in there. We just keep coughing as South African taxpayers at the decisions that are made by government-owned airlines."

Gidon Novick, CEO of Kulula, says to hedge is always a risk and it needs to be done conservatively.

Gidon: "You can work it out, if it is in the sixties, that effectively means they are paying more than double for their fuel than what they could be paying at the current rate."

Derek: "You think that the man at the controls of a national airline that sucks up billions from the state coffers would want to put his side of the story, but all that we got was a tersely worded e-mail: 'The CEO is not available for an interview with Carte Blanche.'"

Over the past six years SAA has lost a staggering R13.74-billion. David Gleason, an independent financial journalist, says it's shocking what taxpayers are forking out to keep the ailing airline afloat.

David Gleason (Financial journalist): "If you assume that we got eight million taxpayers and you divide that out, it means that every taxpayer in this country has contributed R1700 to R2000 to keeping SAA and its aircrafts in the skies. In these times there's no justification for us having to pay this kind of money out of taxpayers' pockets to fly the South African flag on the back end of an aircraft.

Rushj Lehutso is the former general manager of Commercial Operations at SAA. He was appointed in June 2006 to oversee revenue and fleet planning. He also occasionally acted in place of CEO. But in February, he was suddenly suspended, only two months after signing a 3-year retention bonus contract.

Derek: "Rushj, it seemed to start with this letter from Khaya, your employment with SAA, what was this about?"

Rushj Lehutso (Former SAA General Manager): "Derek, that was one of the most shocking letters I have received from the CEO. In that letter he says that the board and I are concerned about your performance and I found that extremely, extremely strange and I said, 'What are you talking about, because my performance speaks for itself.'"


Under Rushj's management, SAA actually began showing revenue growth. Rushj and his team met and overtook their set target by more than R700-million. In response to the CEO's letter, Rushj issued a detailed explanation to the SAA Board.

Rushj: "I copied every member of the board and I also raised some of the governance issues that are not right at SAA. Now, if you raise issues pertaining to governance, like remuneration, which is in line of, 'I like your face, I will give you more, I don't like your face, I will give you less.' Issues that pertained to that kind of nature, you would expect the board as the custodian of all matters that involve governance to take notice or respond to that."



Derek: "But the board never responds. What Rushj gets instead, is a notice of suspension, ordering him to hand in his laptop, his phone... even the office keys."

Suddenly, the reasons for his suspension were no longer poor performance, but misconduct. He alleges that SAA were determined to get rid of him by asking an employee to fabricate allegations against him. This source spoke to us anonymously.

Former co-worker: "I was approached by a senior person. He proceeded to ask me if I would consider laying a sexual harassment case and I asked him, 'You are saying that you are wanting me to fabricate information against the general manager that you people have suspended?' And yes, that was the implication, well, he was implying that."

SAA branded Rushj as a sex pest, which he says has ruined his professional track record.

Rushj: "The following morning when I woke up they had released a statement on 702 that I've been suspended because of having consensual sex with subordinates. Which I really, I was taken aback, what are you talking about. Suffice to say I took the matter to the lawyers, they took four weeks to deliver the charges, and the charges were indeed very frivolous."

There were five charges - one of them was that he'd had an improper relationship with SAA's head of Sales and Marketing, Carla da Silva.

She strongly denies it.

Derek: "Was there any proof?"

Rushj: "What they did, we found out at the hearing that they have set us up. The CEO on the 8th of January sent me an sms telling me about trouble in the Cape Town office, and send the same sms to Carla, so we agreed let's go and sort out this problem. He had some sleazy investigators who followed us, got into the plane with us, followed every step in Cape Town, we went to the office, they stayed outside, and they came up with photos, one photo of the car and one photo of Carla and I having lunch."

Derek: "What sort of relationship did you have with her?"

Rushj: "I had a professional relationship. She was my direct report."

Derek: "There was a full disciplinary hearing in June of this year. It takes five days and fills 23 pages and finds absolutely no evidence of misconduct. SAA don't flinch, they say we don't agree with the findings, Rushj remains suspended."

His second disciplinary hearing was due in September. SAA's lawyers phoned him to say it would be postponed, but the very next day he was fired.

Derek: "So you feel that you have been followed at times, that they are spying on you?"

Rushj: "I've had cars outside my house, as you can imagine, you don't want any harm to come to your family. I've got children - that is very, very scary. I have confronted people parked outside and they drove off in high speed. This is the kind of things that I have been subjected to. I wish I could just understand what it is that they are looking for. It is not worth putting my family through all this."

He's without a job now and wants his name cleared. And he feels the truth about SAA should be heard.

In August Carte Blanche asked the CEO why, when he makes a salary of more than R5-million a year, he needs a retention bonus until his contract expires in 2010. He denied getting a monthly bonus, saying it was a once-off payment.


[Carte Blanche August 2008] Khaya: "It's rubbish."

[Carte Blanche August 2008] Bongani: "That's absolutely not true?"

[Carte Blanche August 2008] Khaya: "Bull****... rubbish."

The audited annual financial report shows that CEO Khaya Ngqula has received a retention premium of R688 000 in the 2007 financial year, ending in March 2008.

Also in the annual report are details of the financial woes of SAA's low cost carrier Mango, launched two years ago.

Competitors like Kulula say it's frustrating that separate financial results for this government owned entity have never been released.

Gidon: "The question to ask is why don't you just show us your financials, why don't just show us your results? We're taxpayers - we're a competitor - but we're also a taxpayer. And we pay our taxes. And we have the right to know if government has taken our money, your and my money, and put it into a new entity which was formed two years ago and that entity has lost hundreds of millions of rand, don't we have the right to know about that?"

Mango has cost the taxpayer R62-million in losses in the past 16 months. But it's actually cost much more if the cost of the shares, at R336-million, are taken into account.

David: "That's the value of the equity in the company, Mango, to which you must add the loss, so the total cost to taxpayers looks just short of R400-million. One of the interesting things that has happened here is that the directors of SAA have now increased the value that they apply to Mango, which up to now has been loss making from the R336- to R495-million. Now, that pretty unusual, in fact it's extraordinary."

Derek: "How can an airline lose that much money?"

Gidon: "Derek, it's a good question. I think if we tried to lose R400-million, I don't think we could, certainly not in 16 months. Kulula was profitable from day one."

And again - no explanation for the losses from SAA, or Mango.

Derek: "The man who should know the nitty gritty of Mango's financial results is their boss, Nico Bezuidenhout. At first we were told that he was willing to speak to us, and all of a sudden, he wasn't available at all."

At the time of Mango's launch, Kulula estimated it would cost taxpayers over R3-million a week to keep Mango in the sky.

Gidon: "I think we were hopelessly wrong, because I think we under-estimated the extent of what it is costing SA taxpayers. We also worked out that it was costing about R27 000 for every Mango flight that took off."

David: "I mean the logical answer to this whole thing is possibly Mango might make it on its own, so take it away from SAA and let it stand on its own."

Also logical, say those who once worked there, is a change of management.

Rushj: "You need a drastic change in mentality, in capability. Unfortunately, the leadership that SAA has currently leaves a lot to be desired."